State Dept. Blocks Keystone Pipeline Project

The Obama Administration rejected the controversial Keystone XL pipeline project on Wednesday, scuttling a key energy initiative that would have created an influx of badly-needed  U.S. jobs, but one that has also riled environmentalists.

The news, which was first reported by FOX News Channel, sparked a fierce response from Republicans and proponents of the project.

The White House, which faced a February 21 deadline to make a final decision on the project, blamed Republicans for forcing its hand.

"The rushed and arbitrary deadline insisted on by Congressional Republicans prevented a full assessment of the pipeline’s impact, especially the health and safety of the American people, as well as our environment," President Barack Obama said in a statement.

Obama said the announcement "is not a judgment on the merits of the pipeline, but the arbitrary nature of a deadline" that prevented the fact-finding needed to approve the project.

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    Interestingly, crude oil prices dropped on the initial news that the White House would reject the Keystone project After eclipsing $102 a barrel earlier in the day, crude settled at $100.59, down 12 cents, or 0.12%, on the day.

    “The Keystone pipeline should be under construction right now. It's going to be continued to be delayed,” said energy analyst Stephen Schork, editor of the Schork Report. “What you’re doing is injecting uncertainty once again into the market -- that uncertainty comes at a price. We’re going to see it in higher prices”

    Schork predicted the Department of Energy will release oil from the Strategic Petroleum Reserve in June or July due to those higher prices. Last year the Obama Administration ordered the release of 30 million barrels of crude to offset rallying prices.

    TransCanada to Reapply

    Reports of the Keystone rejection weighed on shares of Calgary-based TransCanada (NYSE:TRP), which was poised to build the crude oil pipeline from Canada to Texas. After slumping to as low as $39.74, TransCanada closed down 0.79% at $41.41.

    “While we are disappointed, TransCanada remains fully committed to the construction of Keystone XL. Plans are already underway on a number of fronts to largely maintain the construction schedule of the project," TransCanada CEO Russ Girling said in a statement.

    TransCanada said it plans to reapply for a permit and expects a new application would be processed in an expedited fashion, paving the way for an in-service date of late 2014.

    “Until this pipeline is constructed, the U.S. will continue to import millions of barrels of conflict oil from the Middle East and Venezuela and other foreign countries who do not share democratic values Canadians and Americans are privileged to have,” Girling said.

    Obama was under heavy pressure on a number of fronts on the Keystone pipeline as Republicans pointed to the need to create jobs and lower gasoline prices while others worried about the project’s environmental consequences.

    GOP Slams White House for Decision

    Republican Rep. Fred Upton said he has already asked Hillary Clinton, the Secretary of State, to testify before a House committee on the Keystone rejection next week.

    "By declaring that the Keystone pipeline is not in the ‘national interest,’ the President demonstrates a lack of seriousness about bringing down unemployment, restoring economic growth, and achieving energy independence," GOP presidential frontrunner Mitt Romney said in a statement.

    TransCanada and other supporters of Keystone have said the project would create tens of thousands of jobs and some have even forecasted as much as 100,000 jobs would be created.

    “The job creation, economic and energy security arguments are overwhelmingly in favor of building it. The President opposing pipeline construction is not in the best interest of the United States,” said U.S. Sen. Dick Lugar, a Republican from Indiana.

    Jack Gerard, CEO of the American Petroleum Institute, told FOX News Radio, “How can you say that you are for jobs and reject the largest shovel ready job in America. Mr. President, what are you thinking?”

    Alluding to Canadian Prime Minister Stephen Harper’s threat to take their energy to China, Gerard said, “It makes the United States more vulnerable to rely on outside sources for our energy.”

    However, Obama countered charges that he isn't concerned about the nation's energy security.

    The Keystone denial "does not change my Administration’s commitment to American-made energy that creates jobs and reduces our dependence on oil," Obama said. "Under my Administration, domestic oil and natural gas production is up, while imports of foreign oil are down. In the months ahead, we will continue to look for new ways to partner with the oil and gas industry to increase our energy security."

    Environmental, Labor Impact Questioned

    When Congress passed the legislation last month extending payroll tax cuts, it also mandated a decision on the Keystone matter by February 21. The State Department said that was an "insufficient" amount of time for a decision on whether the project was in the "national interest."

    According to the State Department, TransCanada could reapply to build the conduit because the expected rejection doesn’t predetermine future applications.

    Environmentalists had voiced their concern about the impact of the Keystone project. The National Resources Defense Council, which is an environmental group, argued the proposed pipeline would actually hurt the labor situation.

    “The truth is the pipeline would likely cost jobs from a significant oil spill that would cause widespread contamination of agricultural lands and water,” the environmental group argued in a recent blog post.

    An independent study conducted by Cornell University’s Global Labor Institute in September was highly skeptical of the job-creation figures pushed by the oil industry. The Cornell report said TransCanada’s claim of 20,000 direct construction and manufacturing jobs in the U.S. is “not substantiated.”

    “KXL will not be a major source of US jobs, nor will it play any substantial role at all in putting Americans back to work,” the Cornell study said.

    At least one Democratic U.S Senator voiced opposition to the Keystone rejection: Arkansas Senator Mark Pryor said he "strongly" disagrees with Obama and believes "in this day and age it can be done in a way that protects the environment."